Correlation Between Direct Line and Commonwealth Bank
Can any of the company-specific risk be diversified away by investing in both Direct Line and Commonwealth Bank at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Direct Line and Commonwealth Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direct Line Insurance and Commonwealth Bank of, you can compare the effects of market volatilities on Direct Line and Commonwealth Bank and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Direct Line with a short position of Commonwealth Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Commonwealth Bank.
Diversification Opportunities for Direct Line and Commonwealth Bank
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Direct and Commonwealth is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Commonwealth Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Direct Line is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Direct Line Insurance are associated (or correlated) with Commonwealth Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commonwealth Bank has no effect on the direction of Direct Line i.e., Direct Line and Commonwealth Bank go up and down completely randomly.
Pair Corralation between Direct Line and Commonwealth Bank
Assuming the 90 days horizon Direct Line Insurance is expected to under-perform the Commonwealth Bank. But the pink sheet apears to be less risky and, when comparing its historical volatility, Direct Line Insurance is 1.29 times less risky than Commonwealth Bank. The pink sheet trades about -0.15 of its potential returns per unit of risk. The Commonwealth Bank of is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 10,148 in Commonwealth Bank of on November 29, 2024 and sell it today you would lose (285.00) from holding Commonwealth Bank of or give up 2.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Commonwealth Bank of
Performance |
| Timeline |
| Direct Line Insurance |
| Commonwealth Bank |
Direct Line and Commonwealth Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Commonwealth Bank
The main advantage of trading using opposite Direct Line and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Commonwealth Bank can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Commonwealth Bank will offset losses from the drop in Commonwealth Bank's long position.| Direct Line vs. East Africa Metals | Direct Line vs. Chester Mining | Direct Line vs. SmartStop Self Storage | Direct Line vs. National Storage REIT |
| Commonwealth Bank vs. Svenska Handelsbanken PK | Commonwealth Bank vs. ANZ Group Holdings | Commonwealth Bank vs. Westpac Banking | Commonwealth Bank vs. National Australia Bank |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Transaction History module to view history of all your transactions and understand their impact on performance.
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